With my accumulation of significant assets, what options are best to ensure they’re protected?
Protecting one's assets from creditors can be accomplished by availing oneself of statutory protections afforded under the law, utilizing certain irrevocable trusts, and forming and maintaining certain corporate structures.
Depending on the state, certain assets are deemed protected from creditors. In Florida, this includes your Florida Homestead, Insurance and Annuities, IRAs, and assets owned as tenants by the entirety.
A domestic asset protection trust (DAPT) is designed for clients wishing to “judgment proof” themselves to the extent possible under the law. In general, the Act of a permissible jurisdiction that authorizes DAPTs (i.e, Alaska, Delaware, Nevada, etc.) will provide that creditors who exist after the creation and funding of the trust cannot attach to the assets of the trust, so long as the trust terms are consistent with such Act.
Although the DAPT is irrevocable, it may still allow the Grantor to veto distributions; provide a special testamentary power of appointment over the trust assets to state how the assets shall be distributed; manage the investments of the trust; and authorize a Grantor to receive discretionary income and principal distributions.
Offshore Trusts are Irrevocable Trusts established outside the jurisdiction of the United States in order to take advantage of favorable features of foreign legal jurisdictions. These are usually set up for the primary purpose of removing those assets from the U.S. court system and, thus, protecting the assets from creditors. Like a domestic trust, an offshore trust should be irrevocable, and the Grantor should not be a beneficiary or a trustee. However, the Trust may be managed by committee which may include the Grantor, so long as the Grantor does not have sole control over the Trust assets. There are also significant tax and regulatory compliance issues involved with maintaining an offshore trust as a U.S. citizen.
Certain corporate structures can also provide valuable protections. Limited Partnerships and LLCs limit the ability of one member’s creditors to have access to the LP or LLC property. A creditor’s sole remedy in this situation would be a “charging lien.” If no distributions are ordered by the General Partner or Manager, a creditor would receive nothing.